News (April 28, 2016)

Finally times two! I have now uploaded both of the papers that constitute the basic theory of structural rationality. This represents the culmination of an embarrassingly long-running project on the behavioral foundations of dynamic game theory. Structural rationality is, in a sense, " inspired " by experimental evidence on behavior in a game tree and in the associated strategic form, as well as on Selten's strategy method. Structural rationality implies sequential rationality. However, unlike the latter, it allows for the elicitation of conditional beliefs. More generally, it makes it possible to translate interesting game-theoretic assumptions---including backward- and forward-induction---into fully testable behavioral predictions.

I also have a third paper in preparation, tentatively titled Structural Preferences: Applications to Epistemic Game Theory. Among other results, it provides a behavioral characterization of strong belief (Battigalli and Siniscalchi, 2002) that can be directly related to Brandenburger, Friedenberg and Keisler's 2008 characterization of assumption for lexicographic preferences. It is not ready for public consumption, but if you are curious, please email me for a current work-in-progress draft.

In slightly older news, my paper with Eddie Dekel and Amanda Friedenberg on lexicographic beliefs and assumption has been accepted for publication.

Manuscripts

Structural Rationality in Dynamic Games; April 2016.
Abstract. The analysis of dynamic games hinges on assumptions about players' actions and beliefs at information sets that are not actually reached during game play, and that players themselves do not expect to reach. However, it is not obvious how to elicit intended actions and conditional beliefs at such information sets. Hence, key concepts such as sequential rationality, backward induction, and forward induction do not readily translate to testable behavioral assumptions. This paper addresses this concern by introducing a novel optimality criterion, structural rationality. In any dynamic game, structural rationality implies sequential rationality. In addition, if players are structurally rational, their intended actions and conditional beliefs can be elicited via the strategy method (Selten, 1967). Finally, structural rationality is consistent with experimental evidence indicating that subjects behave differently in the strategic and extensive form, but take the extensive form into account even if they are asked to commit to strategies ahead of time.

Foundations for Structural Preferences; April 2016.
Abstract. The analysis of key game-theoretic concepts such as sequential rationality or backward- and forward-induction hinges on assumptions about players' actions and beliefs at information sets that are not actually reached during game play, and that players themselves do not expect to reach. However, it is not obvious how to elicit intended actions and conditional beliefs at such information sets. In Siniscalchi (2016), I address this concern by introducing a novel optimality criterion, \emph{structural rationality}, which implies sequential rationality but allows for the incentive-compatible elicitation of beliefs and intended actions. The present paper complements the analysis by providing an axiomatic foundation for structural preferences.

Risk Sharing in the Small and in the Large, with Paolo Ghirardato; February 2016.
Abstract.
This paper analyzes risk sharing in economies with no aggregate uncertainty when agents have non-convex preferences. In particular, agents need not be globally risk-averse, or uncertainty-averse in the sense of Schmeidler (1989). We identify a behavioral condition under which betting is inefficient (i.e., every Pareto-efficient allocation provides full insurance, and conversely) if and only if agents' subjective beliefs (defined as in Rigotti, Shannon, and Strzalecki, 2008) have a non-empty intersection. Our condition is consistent with empirical and experimental evidence documenting violations of convexity in either outcomes or utilities. Our results show that the connection between speculative betting and inconsistent beliefs is robust to substantial departures from convexity.

Recursive Vector Expected Utility; Preliminary version, May 2010. Comments welcome!Abstract.
This paper proposes and axiomatizes a recursive version of the vector expected utility (VEU) decision model (Siniscalchi, 2009). Recursive VEU preferences are dynamically consistent and ``consequentialist.'' Dynamic consistency implies standard Bayesian updating of the baseline (reference) prior in the VEU representation, but imposes no constraint on the adjustment functions and one-step-ahead adjustment factors. This delivers both tractability and flexibility.
Recursive VEU preferences are also consistent with a dynamic, i.e. intertemporal extension of atemporal VEU preferences. Dynamic consistency is characterized by a time-separability property of adjustments---the VEU counterpart of Epstein and Schneider (2003)'s rectangularity for multiple priors.
A simple exchangeability axiom ensures that the baseline prior admits a representation a la de Finetti, as an integral of i.i.d. product measures with respect to a unique probability µ. Jointly with dynamic consistency, the same axiom also implies that µ is updated via Bayes' Rule to provide an analogous representation of baseline posteriors.
Finally, an application to a dynamic economy a la Lucas (1978) is sketched.